Infy unlikely to raise buyback price above ₹900-mark, say analysts

Infosys is unlikely to raise the buyback price above the ₹900 per share-mark it had offered during the previous round which was worth ₹13,000 crore.

Analysts that BusinessLine spoke to said that India’s second-largest software exporter, which is understood to be readying a second  buyback, is likely to offer much below the price in the earlier round.

Infosys announced at its March-ending annual results that as per the capital allocation policy for fiscal 2019, the board has decided to pay off ₹13,000 crore and a special dividend of ₹10 per share, as part of its plan to payout up to 70 per cent of its free cash flow every financial year. In fiscal 2018, Infosys bought back shares at a premium of 27.8 per cent at ₹900 per share. An email sent to Infosys did not elicit a response.

“A share buyback augurs well to enhance shareholder value and restores confidence amongst shareholders,” said Urmil Shah, IT analyst, IDBI Capital.

Madhu Babu, Research Analyst — Institutional Equities, Prabhudas Lilladher, is of the opinion that Infosys should continue to buy back 4 per cent of equity this year too, as this would lead to gradual shrinkage of net cash on the balance sheet. According to data, Infosys generated free cash flow of $360 million in the September-ended quarter, and in the last fiscal had cash flow of around ₹12,000 crore.

Buyback was not a part of the management agenda till recently. In 2017, Infosys made changes to its Articles of Association in conformity with the Companies Act, 2013 to accommodate buybacks. Interestingly, Infosys could follow the trend of cross-town rival Wipro, which has done two consecutive buybacks (this fiscal and the last one) to reward investors at a time when it too faces growth pressures.

In December 2017, Wipro concluded the second buyback of 34.37 crore equity shares. This resulted in a total cash outflow of ₹11,000 crore. Peers too conducted buybacks recently — TCS for ₹16,000 crore, and HCL Tech for ₹3,500 crore.

“The industry as a whole is trying to recapture growth and since they have piled up huge cash, it is time to reward shareholders when growth is muted,” said an analyst from a multinational brokerage house.

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